Group Mining

Group mining refers to the practice of multiple people or entities pooling their computational resources to mine together. Miners do this to mine more profitably, share rewards and mitigate security risks. In group mining, everyone pools their processing power (denoted in hash rate) and shares the block rewards whenever the mining pool successfully mines a block. A group mining member's reward will be based on their contributed processing power relative to the rest of the miners in the group. 

Solving the mining puzzle before every other miner in the world is like winning a mini-lottery. Fortunately, group mining ensures that all miners can receive constant determinable rewards. 

There are various pools for different cryptocurrencies, with various payout rates, since the pool managers also take a certain percentage of the mined cryptocurrencies for maintaining the pool. 

They are also classified by their reward types (frequency and nature), by whether they keep the transaction fees and distribute only block rewards, or if they allow merged mining where two cryptocurrencies with similar hash types can be mined simultaneously for greater profit.

Benefits of Group Mining

Increased Profitability

By pooling resources, miners in a group can increase their chances of successfully mining a block of transactions, leading to a larger reward. This is especially beneficial for miners who are not able to mine with powerful hardware, as even with the smaller resources, they are still able to generate a profit.

More Stable Income

Miners are able to spread their risk over a larger number of blocks. Thus even if one miner's hardware fails to generate a block, the other miners in the group are still able to generate income. This allows for a more consistent and reliable income.

Lower Barriers to Entry

Joining a mining pool does not require expensive hardware. As long as miners have access to the internet and can download the necessary software, they are able to join a mining pool. This makes it easier for new miners to start mining, as they do not need to invest in expensive equipment to generate revenue.

Improved Efficiency

Miners can solve complex equations and generate new blocks more quickly, resulting in improved efficiency, as the miners can generate more blocks in less time.

Disadvantages of Group Mining

Lower Profits

One of the major disadvantages of group mining is that profits are usually lower compared to solo mining. This is because the pool's combined hash rate effectively competes against all other miners, not just the individual miners within the pool. As such, the rewards are shared among the pool members and are usually much lower than what a solo miner could earn.

Unequal Distribution of Rewards

Another disadvantage of group mining is that the rewards are not always distributed fairly among members. Some pools use a system where members are paid based on the number of shares they have contributed. This can lead to larger miners gaining more rewards than smaller miners, even if the smaller miners have contributed more work.

Security

Group mining pools can also be vulnerable to malicious behavior from miners. If a miner is able to control more than 50% of the hash rate in the pool, they could potentially manipulate the block rewards or even double-spend coins. This is known as a 51% attack and is a major security risk.

Extra Fees

Some mining pools charge a fee for their services, which can further reduce profits. 

Centralization

Finally, group mining can lead to network centralization, as many miners join the same group and contribute to the same reward.